Amortization

1. Amortization

2. Learning Objectives
• Understand what amortization means
• Learn amortization formulas
• Apply amortization in real-life Filipino business
contexts
• Compute loan payments and schedules

3. What is Amortization?
• Gradual repayment of a loan over time
• Consists of principal + interest payments

4. Key Terms
• Principal – Original loan amount
• Interest – Cost of borrowing
• Term – Loan duration
• Payment – Regular installment amount

5. Amortization Formula
• A = P × [i(1+i)^n] / [(1+i)^n – 1]
• A = payment per period
• P = principal, i = interest rate per period, n =
number of periods

6. Example: Loan Payment
• P = ₱500,000, i = 10% annually, term = 5 years
(annual payment)
• A = 500,000 × [0.10(1.10)^5] / [(1.10)^5 – 1]
• A = ₱131,366.27

7. Amortization Table
• Shows payment breakdown over time
• Columns: Period, Payment, Interest, Principal,
Balance

8. Sample Amortization Table
• Year 1: Payment = ₱131,366.27
• Interest = ₱50,000
• Principal = ₱81,366.27
• Balance = ₱418,633.73

9. Full 5-Year Table
• Year 1: ₱131,366.27 (Interest: ₱50,000,
Principal: ₱81,366.27)
• Year 2: ...
• Year 5: Loan fully paid

10. Applications in the Philippines
• Pag-IBIG housing loans
• Bank car loans
• Microfinance loans

11. Factors Affecting Payment
• Loan amount
• Interest rate
• Loan term length
• Payment frequency

12. Monthly vs Annual Payments
• Monthly: Smaller payment, more frequent
• Annual: Larger payment, less frequent

13. Extra Payments
• Paying extra reduces loan balance faster
• Saves interest cost over time

14. Business Applications
• Equipment financing
• Business expansion loans
• Franchise loans

15. Practice Problem
• Loan: ₱200,000, i = 8% annually, term = 3
years
• Find annual payment and first-year breakdown

16. Solution
• A = ₱77,546.33
• Year 1 Interest = ₱16,000
• Year 1 Principal = ₱61,546.33
• Balance after Year 1 = ₱138,453.67

17. Using Technology
• Excel amortization templates
• Online calculators
• Financial calculator functions

18. Common Mistakes
• Not converting interest rate properly
• Mixing monthly and annual rates
• Rounding errors

19. Key Takeaways
• Amortization spreads payments over time
• Payment includes both interest and principal
• Tables help visualize repayment

20. Thank You / Q&A
• Any questions?
• Share a personal loan example for discussion